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Finalisation of ‘Chain of Responsibility’ Guidelines

As we reported in a previous update, changes were made to the Environmental Protection Act 1994 (EP Act) in early 2016 by way of the Environmental Protection (Chain of Responsibility) Amendment Act 2016 (CoRA). Those changes have increased the Department of Environment and Heritage Protection’s (DEHP) powers to issue environmental protection orders (EPOs), which require entities to conduct specific actions in relation to sites operated by their ‘related persons’. By way of background, an EPO can only be issued on the basis of the grounds listed in the EP Act, including to secure compliance with a condition of and Environmental Authority.

The CoRA amendments to the EP Act state that the DEHP must have regard to any guidelines made about issuing EPOs to related entities.

After undergoing public consultation during November 2016, those guidelines have now been finalised and were released by DEHP on 27 January 2017. These guidelines provide industry with much needed guidance on how these new powers are likely to be exercised including the factors DEHP is likely to have regard to prior to issuing a CoRA EPO.

DEHP Considerations

The CoRA guideline:

expressly states that the intent of the guideline (and the CoRA provisions) are to expand the powers of the DEHP to ensure that companies and their related parties – and not the State - bear the cost of managing and rehabilitating sites;

is to be read in conjunction with the DEHP’s Enforcement Guidelines – which assist in decision making in relation to offences and breaches of environmental duties under the EP Act;

provides that, prior to issuing a CoRA EPO, the DEHP will consider:

culpability;

whether any enforcement action taken by the DEHP will be proportionate to the seriousness of the breach by considering: the objectives of the EP Act; the actual or potential impact of the offence and the level of culpability of each offender.

Key CoRA EPO principles

By way of some of the key guiding principles to guide decision making and enforcement by the DEHP of CoRA EPOs:

environmental authority (EA) holders and operators conducting environmentally relevant activities (ERA) (where an EA is not required) have responsibility for compliance with the conditions of their EA (if one is required) and the EP Act – including the general environmental duty (to, take all reasonable and practicable measures to prevent or minimise environmental harm);

EA holders and operators conducting ERAs must take all reasonable and practicable measures to protect environmental values from unlawful harm;

where enforcement against EA holders or operators conducting ERAs will not achieve restoration or rehabilitation of the environment, or the protection of the environment from harm, the issue of a CoRA EPO will be explored, subject to other key guideline principles;

being a ‘related person’ alone does not of itself trigger the issue of a CoRA EPO – culpability of the related person must be established prior to a related person receiving a CoRA EPO; and

the DEHP will only consider issuing a CoRA EPO to a related person where a company has avoided, or attempted to avoid, its environmental obligations and the related person has participated in this conduct.

Culpability

Establishing culpability is fundamental to the issue of a CoRA EPO, but is not a concept dealt with in the CoRA or the EP Act.

The guideline provides that whether or not a person is culpable involves determining who is responsible for the offence by considering:

who is primarily responsible for the offence – that is who:

committed the act;

formed the intention (if relevant) to commit the act (or omission);

created the material circumstances leading to the alleged offence; and

benefitted from the offence; and

what was the role of each alleged offender.

These considerations are to direct an investigation by the DEHP into a non-compliance matter and the collection of evidence.

It is expected that this part of the guideline will be most frequently visited to guide ‘related persons’ and the DEHP itself, in considering whether or not to issue a CoRA EPO. Unhelpfully, this section of guideline does not use consistent terminology in dealing with concepts of culpability. Moving forward, it would be of assistance for the DEHP to revisit this part of the guideline to consistently articulate its position in this regard.

Relevant connection of a related person

A key concept in determining whether a person may be a ‘related person’ to a company to whom a CoRA EPO can be issued involves considering that persons’ relevant connection to the company by virtue of the person:

significantly benefiting financially from the carrying out of the relevant activity by the company; or

over the last two years, being in a position to influence the company’s conduct in relation to the way in which, or the extent to which, the company complies with its obligations under the EP Act.

Significant financial benefit

In terms of determining what is a ‘significant’ financial benefit the guideline states that this factor will vary depending on the circumstances of each case (and therefore, potentially each person) if the financial benefit is ‘important, notable, or of consequence, having regard to its context’.

Position to influence

The DEHP may decide that a person has a relevant connection with a company if it is satisfied that the person is, or has during the previous two years, been in a position to influence the company’s conduct in relation to complying with its obligations under the EP Act.

The determination that a person was a in a position to influence the company’s environmental conduct is also relevant to a determination of culpability and in considering whether the related person took all reasonable steps in relation to the company’s environmental conduct.

Reasonable steps

One of the factors to be considered by the DEHP in determining whether or not to take action where a related person is found to be culpable for the company’s non-compliance with the EP Act, is whether the related person took all reasonable steps having regard to their position, to influence the company’s conduct.

While there is no comprehensive list as to what will constitute ‘reasonable steps’ the guideline, the guideline indicates that the DEHP will consider the facts and circumstances of each case in light of the nature of the relationship between the company and the related person. The guideline states that the DEHP will give consideration to the:

related person’s state of knowledge at the time, and the lead up to, the issue or incident;

the foreseeability and probability of the incident occurring;

legal and practical ability for the related person to influence the company’s conduct;

extent of the related person’s actual and expected knowledge; and

related person’s exertion of position to influence, financial decision making role and that person’s reliance on others to ensure the company complied with its obligations.

Conclusion

As a general tool, the CoRA guidelines provide some indication as to the matters and factors DEHP will have regard to in investigating and potentially issuing CoRA EPOs to a ‘related person’ under the EP Act.

While the guideline provides some examples to show industry what the DEHP considers a ‘significant financial benefit’ may entail, who is in a ‘position to influence’ a company and a related person’s reasonable steps may look like, by their nature, these examples are simplistic. In practice, each of these matters will need to be considered having regard to the complexities of each person and their specific relationship to the company who carried out (or is carrying out) the activity.

In addition, some CoRA guideline examples as to potential culpability are not consistent with other ‘corporate’ relationship structure requirements – particularly in relation to the obligations the CoRA guideline seeks to impose on company shareholders and insolvency practitioners. How the tension between these requirements bears out remains to be seen.